Unwise to Waive Viable Coverage Argument

Never Try a Totally New Argument On Appeal

Lawyers and litigants select a theory on which to try a serious case. They present all the evidence and make all the arguments on that theory. If they lose at trial the only thing available for the losing litigant is to try to convince the appellate court that the trial court erred and its theory of the case was correct.

However, when the litigant abandons its trial theory and focuses its appeal on new theories it faces a very unhappy and disappointed appellate court. That is what happened at the Third Circuit in Tri-Arc Financial Services, Inc. v. Evanston Insurance Company; Markel Service, Incorporated, No. 16-4404, United States Court Of Appeals For The Third Circuit (2018).


Tri-Arc Financial Services, Inc. (“Tri-Arc”) appeals from the dismissal of its lawsuit against Evanston Insurance Company and Markel Service, Inc. (collectively “Evanston”) seeking a declaratory judgment that Evanston — Tri-Arc’s professional liability insurer — was required to defend Tri-Arc in a third-party lawsuit that was brought against Tri-Arc. On appeal, Tri-Arc raises two bases upon which to reverse the District Court’s dismissal, neither of which were presented to the District Court for consideration.

Glenn Fischer was a Tri-Arc partner, who, purporting to represent the company, sold phony insurance policies supposedly from Wesco Insurance Company and Amtrust Financial Services, Inc. (collectively, “Wesco”). Fischer then absconded with the premium payments. One of the victims of Fischer’s scheme was Vehicle Leasing II, LP (“Vehicle Leasing”), who paid over a million dollars in supposed premium payments to Fischer before learning that no policy had ever been issued to it. Vehicle Leasing filed a lawsuit against Wesco, which in turn filed a third party complaint against Fischer and Tri-Arc, asserting that Fischer and Tri-Arc were the liable parties, or at the very least that they were liable to Wesco for indemnity and contribution. Upon being notified of the lawsuit, Tri-Arc made a demand upon its own insurer, Evanston, who refused to defend Tri-Arc in the lawsuit. In support, Evanston cited Exclusion F in the insurance policy for any claims related to premium payments.


The District Court rejected Tri-Arc’s argument on the basis that Vehicle Leasing’s claim was predicated on seeking repayment of what it thought were premium payments, and “if the underlying complaint asserts a claim for lost premiums, Exclusion F applies, regardless of how the underlying claim is characterized.” The District Court accordingly granted Evanston’s motion and ordered the case closed. Tri-Arc timely appealed.


Tri-Arc’s primary argument on appeal — that the premium exclusion clause is ambiguous because it does not define “premium” — was not raised below. On the contrary, Tri-Arc made precisely the opposite argument before the District Court, asserting in effect that the definition of “premium” is perfectly clear. Rather, it argued that the policy’s premium exclusion was inapplicable because the payments to Fischer, which were untethered to an actual insurance contract, “cannot constitute premium payments.”


On appeal, Tri-Arc argued that the problem is not that the payments cannot count as premiums, but that “premium” in the contract is ambiguous because it does not define whether it excludes coverage for a premium that is constructively received. Tri-Arc relied solely upon the assertion that, whether or not received, the payments were not premium payments. The District Court was therefore not given notice of this argument and so never addressed whether the word “premium” was itself ambiguous in the context of the insurance contract.

The appellate court was urged to reverse on the basis of another argument not raised before that court. Unfortunately, for their argument, an appellate court is not a court of first instance, so as a general matter it will refuse to consider arguments not preserved below. And where the unpreserved argument was waived, meaning intentionally abandoned, it has no authority to address the argument. The nature of the claim made clear  to the Third Circuit that Tri-Arc’s failure to pursue the claimed ambiguity argument  at the trial court was a conscious or tactical choice made in favor of the argument that it did make, as opposed to an inadvertent omission, and thus constitutes a waiver.

The crucial question regarding waiver is whether defendants presented the argument with sufficient specificity to alert the district court.

An appellate court should not, and will not, reach a forfeited issue in civil cases absent truly exceptional circumstances. Tri-Arc’s assertion that the particular insurance contract that it entered into with Evanston is ambiguous for want of a specific definition of the word “premium,” a word that Tri-Arc asserted previously in this litigation has had the same clear definition from time immemorial, satisfies neither of the narrow exceptions.

The Third Circuit has consistently held that it will not consider issues that are raised for the first time on appeal. This rule is especially applicable here, where Tri-Arc — both prior to and during the course of this litigation — had steadfastly adhered to a single theory of liability, upon which Evanston staked its defense and upon which the District Court ruled, only to append this alternative theory that should have been equally apparent in the first instance.


The one thing that is necessary in every insurance coverage dispute is that the parties must posit to the trial court every possible argument, even if the arguments are contradictory. Taking away the ability of the trial court to choose forces the court to rule on the sole argument made. Tri-Arc had more than one possible argument and chose the wrong one.

© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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